Correlation Between Ford and Adobe Systems

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Can any of the company-specific risk be diversified away by investing in both Ford and Adobe Systems at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Ford and Adobe Systems into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Adobe Systems Incorporated, you can compare the effects of market volatilities on Ford and Adobe Systems and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Ford with a short position of Adobe Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Adobe Systems.

Diversification Opportunities for Ford and Adobe Systems

0.84
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Ford and Adobe is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Adobe Systems Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adobe Systems Incorp and Ford is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Ford Motor are associated (or correlated) with Adobe Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adobe Systems Incorp has no effect on the direction of Ford i.e., Ford and Adobe Systems go up and down completely randomly.

Pair Corralation between Ford and Adobe Systems

Taking into account the 90-day investment horizon Ford is expected to generate 3.32 times less return on investment than Adobe Systems. But when comparing it to its historical volatility, Ford Motor is 1.52 times less risky than Adobe Systems. It trades about 0.13 of its potential returns per unit of risk. Adobe Systems Incorporated is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  28,593  in Adobe Systems Incorporated on September 4, 2022 and sell it today you would earn a total of  5,560  from holding Adobe Systems Incorporated or generate 19.45% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy95.45%
ValuesDaily Returns

Ford Motor  vs.  Adobe Systems Incorporated

 Performance (%) 
       Timeline  
Ford Motor 
Ford Performance
0 of 100
Over the last 90 days Ford Motor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Ford is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Ford Price Channel

Adobe Systems Incorp 
Adobe Performance
0 of 100
Over the last 90 days Adobe Systems Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, Adobe Systems is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Adobe Price Channel

Ford and Adobe Systems Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Ford and Adobe Systems

The main advantage of trading using opposite Ford and Adobe Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Adobe Systems can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Adobe Systems will offset losses from the drop in Adobe Systems' long position.
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The idea behind Ford Motor and Adobe Systems Incorporated pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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Check out your portfolio center. Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.

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